No payments are due. That is not the same as nothing being owed.

Part 1

No payments are due. That is not the same as nothing being owed.

A reverse mortgage lets an owner draw on the value of a house without selling it and without making monthly payments. Interest and fees are added to the balance instead, so the amount owed grows rather than shrinks, and it is settled when the loan becomes due.

The version most people encounter is insured by the federal government, and that insurance is what makes the rules worth reading. It buys a specific and valuable protection, and it comes with a specific set of conditions attached to the house.

The single most useful thing to understand is that the absence of a monthly payment does not mean the absence of obligations. There are still things a borrower must do, and failing to do them makes the whole balance due, which for a household with no other assets means selling or losing the house.

One threshold governs everything below. Under the federal rules the youngest borrower has to be 62 or older at the time of closing. A younger spouse is the situation Part 5 is about.

The rules here are federal, set by the department that insures the product, and they apply the same way in every state. State law still does a good deal of work around them: it governs the property itself, how a foreclosure proceeds, how an heir takes title afterwards, and, through homestead and marital property rules, some of a spouse's position.

This guide describes how the product works. It is educational information, not a recommendation to take one or to avoid one, and it is not legal, tax or financial advice.

Part 2

The four ways the money comes out

Federal rules provide for the loan to be paid out in different shapes, and the mortgage has to say which applies.

• Tenure. Equal monthly payments for as long as the borrower lives in the house. Under the regulations these are sent on the first business day of each month.
• Term. Equal monthly payments for a fixed number of months, after which they stop while the loan continues.
• Line of credit. Nothing arrives unless requested. A request has to be met within five business days.
• A combination of a line of credit with either monthly option.

Two consequences follow. Interest and the insurance premium are charged on the balance, so an amount not yet drawn is not yet accruing either. And a term option ends while the obligations do not: the payments stop, the balance stays, and every condition on the house continues to apply.

Part 3

The events that make the whole balance due

Federal rules require the mortgage to state when the outstanding balance becomes due and payable in full. The list is short and specific.

It becomes due when a borrower dies and the property is not the principal residence of at least one surviving borrower, subject to the deferral covered in Part 5, or when a borrower conveys away all of their title and no other borrower retains any.

It also becomes due, on the insurer's approval, if any of these happen:

• The property stops being a borrower's principal residence for reasons other than death, and is not the principal residence of another borrower.
• A borrower fails to occupy the property for more than 12 consecutive months because of physical or mental illness, and it is not the principal residence of another borrower.
• The borrower does not provide for the payment of property charges.
• Any obligation of the borrower under the mortgage is not performed.

Part 4

The bills that are still yours

Federal rules put two continuing duties on the borrower in the mortgage itself: keep the property in good repair, and provide for the payment of property charges.

Property charges is a defined list, and it is longer than most summaries suggest. It covers ground rents, condominium fees, planned unit development fees and homeowners' association fees, and separately property taxes including special assessments, hazard insurance premiums and any applicable flood insurance premiums.

This is the mechanism behind most reverse mortgage foreclosures, and the reason is structural rather than careless. A household that took the loan because money was tight is the same household that will find an insurance renewal or a tax bill hard in a bad year, and unlike a missed mortgage payment there is no small consequence available. Non-payment of property charges is on the list in Part 3.

Who pays them, and who decides

The taxes and insurance in the second group can be paid in more than one way, and the choice is not always the borrower's. On the results of a required financial assessment the lender may require a set-aside from the loan to cover them. Where the lender does not require one, the borrower elects at closing between paying the charges independently, having a funded set-aside, or on some loans having the lender pay them.

Part 5

The spouse who is not on the loan

Where one member of a couple is not a borrower, usually because they were too young to qualify or were left off to increase the amount available, the death of the borrowing spouse would ordinarily make the loan due while the survivor is still living there.

Federal rules now require the mortgage to defer that. The mechanism is called the Deferral Period, and it runs where the last surviving borrower dies before an Eligible Non-Borrowing Spouse, for as long as that spouse keeps meeting the conditions attached to the status.

Two features of it need stating plainly, because they are unforgiving.

First, the deferral depends on the spouse being an Eligible Non-Borrowing Spouse. That is a defined status, resting on a specific set of conditions the regulations call qualifying attributes, established at origination and then maintained continuously. This guide does not list them because the list is the lender's to give and it is the thing to obtain in writing. A spouse who was never identified as eligible at the outset does not acquire the protection later.

Second, and this is the hard part: where a Non-Borrowing Spouse stops satisfying the qualifying conditions and becomes ineligible, federal rules provide that the lender may not offer an opportunity to cure, and the loan becomes immediately due and payable on the basis of the borrower's death. There is no grace period built into that particular outcome.

That is worth stating precisely, because it does not mean nothing is ever curable. Other defaults arising during a Deferral Period carry a 30 day opportunity to cure, and where it is taken the Deferral Period is reinstated. That route stays open even after a foreclosure has been started, though the lender may require its costs, including foreclosure costs and reasonable legal fees, to be paid from some other source rather than added to the loan. What is not curable is the loss of eligible status itself.

Part 6

What cannot happen to you, and the conversation required first

The insured product carries one protection that is worth understanding precisely, because it is the thing the insurance is for.

No personal liability

Under current law, federal rules state that the borrower has no personal liability for the outstanding balance. The lender may enforce the debt only through sale of the property, and is not permitted to obtain a deficiency judgment against the borrower if the mortgage is foreclosed.

So where a balance has grown past what the house is worth, the shortfall is not chased. It does not follow the borrower into their other assets, and it is not passed to the family as a debt. That is a genuine and unusual protection, and it is the reason the insurance premium exists.

What it does not do is preserve the house, and the distinction matters most to whoever expects to inherit it. No shortfall is chased, but keeping the property is not free either: an heir who wants to keep it has to settle the loan, from other money, rather than simply take it on. The choice they face is paying it off or letting the house be sold, and both are very different from inheriting a house outright.

The counseling that cannot be skipped

Federal rules require counseling from an approved counselor before the loan proceeds, and the requirement is broader than most people expect. It reaches the borrower, any Non-Borrowing Spouse whether eligible or not, and any non-borrowing owner of the property. A lender must supply, at the first contact, a list of approved counselors and the agencies employing them.

Part 7

The one afternoon checklist

These are the questions the outcome turns on. Almost none of them can be revisited once the loan exists.

• Establish whether both spouses will be borrowers. If not, establish in writing that the other is a formally Eligible Non-Borrowing Spouse, and what conditions they must keep meeting.
• Ask what happens if that spouse stops meeting those conditions. The answer is that the loan becomes due with no opportunity to cure, and it is better heard now.
• Write down exactly what counts as a property charge on this loan: ground rents, condominium, development and association fees, property taxes and special assessments, hazard insurance and any flood insurance.
• Find out before closing whether the assessment will require a set-aside, and if not, which of the three elections you will be asked to make. Two of them cannot be undone afterwards.
• Note the twelve month occupancy rule and what it would mean for a single borrower living alone who needed extended care.
• Confirm which payment option the mortgage will state, and what happens at the end of it if it is a term option.
• Ask whether the insurance premium is being added to the balance, and look at a projection of the balance over ten and twenty years.
• Take every one of these questions to the required counseling session, and keep the answers.
• Tell whoever expects to inherit the house what the loan is, and that keeping the property means settling the loan from other money rather than simply taking it on. That conversation is easier now than it will be later.